IDBI, LIC ink pact for take-out financing of long-gestation projects

Mumbai, Dec 21 (UNI) Industrial Development Bank of India(IDBI) and the Life Insurance Corporation of India (LIC) have forged a tie-up to take up joint and take-out financing of long-gestation projects, including infrastructure.

A Memorandum of Understanding (MoU) to this effect was signed here today by IDBI Chairman&Managing Director V P Shetty and LIC Executive Chairman T S Vijayan.

In effect, Mr Shetty explained that the projects covered under the MoU could be appraised by IDBI and LIC, either singly or jointly, based on mutual discussions. However, they would be 'jointly financed' with repayment of a major part of IDBI's exposure being front-ended while those of LIC would be back-ended, he said while addressing a press conference here following the MoU signing ceremony.

It also provides for 'take-out financing' of existing loan assets, said Mr Shetty adding that the projects - in the public or private or for that matter joint sector - to be covered under the MoU will be selected through mutual consultation between IDBI and LIC.

Replying to a related query, he said there are no restrictions on either the number of projects or quantum of loan to each project that can be given under the MoU. ''The timing of the MoU is significant as it comes at a time when the Government has estimated that India needs an investment of at least USD 320 billion in the next five years for infrastructure development,'' he said.

The tie-up between the two public sector organisations will help in creating funding for a pool of infrastructure projects and leverage the credit appraisal, due diligence and syndication, besides sourcing skills of IDBI for such large projects. The strategic alliance with LIC, with its access to long-term funds, will thus help us to jointly finance large projects with elongated payback period.

In this context, Mr Shetty clarified that LIC will have the 'first right of acceptance' for any projects to be financed either singly or jointly. ''Only after LIC acceptance, other banks and financial institutions wanting to be part of syndicating exercise for big-ticket infrastructure project lending will be involved thereafter.'' Replying to a specific question, Mr Shetty said IDBI already has projects for financing upto Rs 15,000 crore, besides another Rs 32,000 crore to Rs 35,000 crore are in various stages taken up in the next calendar year. ''IDBI still has a mandate for development finance business, '' he said. Responding to another specific query, he said LIC&IDBI along with other banks in a syndicating exercise may fund up the Mumbai Economic Zone project to the tune of Rs 5,000 crore.

LIC Chairman T S Vijayan said ''As the nature of funds received in life insurance business is long-term in nature, investment in infrastructure provides us with an avenue for deploying funds for a longer period.'' The signing of the MoU, Mr Vijayan continued, will strengthen the ties between the two institutions and help in developing synergies with both IDBI and LIC financing large projects and contributing meaningfully to national development.

While IDBI's exposure being front-ended, restricted upto generally between four to five years and a maximum of 7 to 10 years selectively, LIC would be taking back-ended exposure upto 20 years.

UNI SN GB AW1809